The doctrine of
unclean hands does not preclude a medical marijuana dispensary from seeking to
collect on a judgment it obtained against its former lawyer for money he stole
from it, the Ninth U.S. Circuit Court of Appeals ruled Friday.

Overruling a
bankruptcy judge, the panel said Northbay Wellness Group was entitled to a
nondischargeability adjudication against Michael Beyries.

The dispensary
operator sued Beyries, a Santa Rosa sole practitioner, in 2008, saying he had
resigned two years earlier as the group’s attorney and as a member of its board,
and absconded with $25,000 which the dispensary had entrusted to him as a legal
defense trust fund.

After Northbay
secured a six-figure jury verdict, plus punitive damages, against Beyries, the
attorney filed for bankruptcy and listed Northbay as a creditor in the amount
of $349,430.96 debt.

Northbay then
moved to have the bankruptcy court declare the debt nondischargeable. Following
trial, the judge agreed that Beyries engaged in “fraud or defalcation while
acting in a fiduciary capacity,” but ruled the doctrine of unclean hands barred
a nondischargeability determination because at least some of the stolen money
came from illegal marijuana sales.

Balance of
Equities

U.S. District
Judge Jeffrey White of the Northern District of California affirmed, but Judge
Michelle Friedland, writing for the Ninth Circuit, said the balance of equities
lies with the plaintiff.

“Because
Beyries’s wrongdoing outweighs Northbay’s, and because application of the
unclean hands doctrine to absolve an attorney of responsibility for stealing
from his client would be contrary to the public interest, we reverse,” the
judge said.

The U.S. Supreme
Court has held that the doctrine of unclean hands “does not mean that courts
must always permit a defendant wrongdoer to retain the profits of his
wrongdoing merely because the plaintiff himself is possibly guilty of
transgressing the law,” Friedland wrote.

“The bankruptcy
court failed to conduct the required balancing, instead concluding solely from
the fact that Northbay had engaged in wrongful activity that the doctrine of
unclean hands applied,” she added.

“Had the
bankruptcy court weighed the parties’ respective wrongdoing, it necessarily
would have concluded that Beyries’s wrongdoing outweighed Northbay’s, both as
to harm caused to each other and as to harm caused to the public.”

Since Beyries
was on Northbay’s board of directors and partnered in its business, he was just
as responsible for the dispensary’s illegal sales, the court found.

“Allowing
Beyries to avoid through bankruptcy his responsibility for misappropriating his
client’s money would undermine the public interest in holding attorneys to high
ethical standards,” Friedland wrote.

‘Unclean Hands’

Recognizing the
“critical importance of enforcing lawyers’ obligations to their clients,”
Friedland said that “the doctrine of unclean hands cannot prevent recovery of
funds stolen from a client by his or her lawyer.”

The opinion was
joined by Judges Jacqueline Nguyen and Milan Smith Jr.

The case is Northbay
Wellness Group, Inc. v. Beyries, 13-17381.

State Bar
records show that Beyries was disbarred earlier this year after he failed to
appear for a State Bar Court trial that had previously been continued four
times at his request, then failed to move for the setting aside of his default
within the time allowed.

The charges on
which he was set to be tried were:

•Stealing
Northbay’s $25,000;

•Incompetently
representing Northbay in connection with a lease for its premises, the
incorporation of the group, and advice regarding tax-exempt status;

•Failing to
return more than $13,000 in legal fees he obtained from the group and did not
earn;

•Misrepresenting
the status of the lease;

•Falsely telling
the group that he had obtained a determination of its non-profit and tax-exempt
status; and

•Fairepresenting
the status of the lease;

•Falsely telling
the group that he had obtained a determination of its non-profit and tax-exempt
status; and